What is the debt ceiling?

America's economy is approaching a critical Tipping Point we do need to raise the debt ceiling to avoid economic Calamity the U.S government has hit its debt ceiling of 31.4 trillion dollars causing a tense standoff Congress has to vote to raise the debt ceiling Republicans who control the House of Representatives are using this power as a bargaining chip to rewrite the budget speaker McCarthy offered a very different way forward he's proposed deep cuts that I believe are going to hurt American families I would hope that he'd be willing to negotiate for the next two weeks so we could actually solve this problem and not take America on the brink neither side wants to back down but if they don't catastrophe looms not lifting the debt ceiling would be a Kamikaze act that would threaten the health and viability of the American economy with disastrous spillover effects from the global economy so what is the debt ceiling and why does reaching it mean possible economic disaster the debt ceiling which is really uniquely an American thing refers to the total amount of money uh that the government the federal government is allowed to borrow it's a political creation uh inevitably government debt goes up over time the size of the economy is getting bigger the government is regularly running deficits so you would expect that debt would go up over time but because you have this prescribed debt ceiling from time to time the government's borrowing hits that limit when that happens the thing that has to occur is that the debt ceiling has to be raised the point is that America has incurred all of these debts because of all of its ongoing obligations whether to paying government salaries or to paying retired pensioners their Social Security payments to pay for health insurance to paying for ongoing government programs if they don't increase the debt ceiling the government will not be able to make the spending obligations it would only be a matter of time before the government would very likely default on its debts that would send shock waves through Global markets it would fundamentally undermine the position of the dollar critics of the debt ceiling have proposed workarounds there's two that you mainly hear about one is the idea that the treasury should mint an absolutely massive coin uh not massive in terms of size but massive in terms of value perhaps a trillion dollar platinum coin deposit that at the Federal Reserve and then use that to fund government operations the other workaround that you'll hear about sometimes is using the 14th Amendment of the Constitution which states that U.S government debts shall not be questioned so the argument is that the White House can cite that Amendment while the basic solution to the debt ceiling is for Congress to agree that the debt ceiling is damaging is harmful uh and and just basically agree to suspend it in perpetuity that would be the simplest solution but politically it's just not tenable uh because the party that's not in power does enjoy the leverage that that the debt ceiling confers upon them foreign

Channel: The Economist

Views: 269,736

Keywords: The Economist, Economist Films, Economist videos, politics, news, short-documentary, debt ceiling

Id: iJ-DET5XUsE

Length: 3min 32sec (212 seconds)

Published: Thu May 11 2023